As we sit back and watch the “markets” trying to do their ONLY job- and that would be to have a true price discovery mechanism where there are willing buyers and willing sellers that agree on a fair price- we continue to see the black hand of central banks and their buddies destroying any true price discovery. This is the main reason why I say “all prices are fake. The economy is just a debt-based illusion where debt is counted as growth and many times even as wealth as the numbers are skewed to keep everyone in the dark.”

Most debt-based financial assets are being propped up with cash being conjured up from nowhere with NO VALUE actually being produced to back it up. Then the conjurers and their allies go into the “markets” to either prop up the price of stocks and bonds to give the illusion that “all is ok” or to smash the price of other things- like gold and silver down so the dollar looks strong and so they can buy as much gold and silver as possible.

Central banks are now in the fourth year of buying record amounts of gold. A large reason for this is rising interest rates. While that may seem counterintuitive it actually makes a lot of sense. The main reason is that foreign governments don’t actually hold a majority of US dollars but store the dollar’s “value” in Treasury notes.

Let’s say China bought 10-year treasuries 5 years ago with a rate of 2%. This pays them $2,000.00 on every $100,000.00 for 10 years. So far, so good. Fast forward to today when the 10-year note has a yield of 4.2%. If China sells that bond now, they will lose a good portion of that yield that they have been paid. If they hold to maturity, there are MANY things that could go wrong  :

  • The US dollar loses most of its perceived value and while the principal gets paid the VALUE is FAR lower than was anticipated.
  • A war breaks out and the bonds are either frozen or stolen- ask Russia how that worked out.
  • Rates could continue to rise wiping out all interest earned and even more unless held to maturity.

I am using China as an example, but you could use any number of countries in this example- particularly the BRICS 11 and the 40 countries looking to join.

Central banks which are buying gold in record amounts are not only buying gold, but they are also dumping US debt. This is the main driver of higher global interest rates.

The reasons that they are buying gold include:

  • Gold is an ASSET. It is not a debt-based promise to repay.
  • Gold has no counterparty risk. You do not count on someone else’s promise to repay.
  • They see that central banks are actively destroying the value of their currencies to varying degrees.
  • Most nations are drowning in debt. In the case of the USA, it appears that there is NO way our debt could ever get repaid with our dollar retaining even a fraction of its value. A quick trip to will show a MASSIVE wall of debt that is growing exponentially, and the tax receipts are falling. This is a large clue that our economy is collapsing. Keep in mind this is what we are allowed to see- there is MORE that is off the books like wars, etc.
  • There is growing suspicion that the debts will be written off one way or another.

I was with a client (and friend) of mine at lunch this week and I remembered something I used to do. Try this.

Ask someone to close their eyes. Take a dollar (or any denomination) bill out of your pocket. Ask them to feel the bill and tell you what denomination that bill is. Since all paper is the same and has NO intrinsic value except that it is a claim on (in our case- NOTHING but as it was supposed to be) something of value. The US dollar is a debt-based unit owed back to the central bank and can really only be used to conduct commerce. It is NOT an ASSET, but it is actually a LIABILITY. This is why its “VALUE” cannot be determined by touch.

Now take an ounce of silver and tell them it is an ounce of silver, and the VALUE is known. The reason- It is an ASSET that exists on the elemental chart. It has its own VALUE and doesn’t need another asset to determine what it is worth. Keep in mind that PRICE is one thing- VALUE is another.

What this shows me is that the perceived “VALUE” of the dollar is an illusion and hard assets are real.

As I wrote earlier this week interest rates are rising, the perceived value of the collateral backing up the debts are falling in many cases. Defaults are also rising across the board. To me, the debt looks like the Titanic and the deck chairs are being moved around as the ship is going down.

Be Prepared!

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